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Latin America and Private Equity: Bringing the Numbers to Life

One of my previous professional incarnations saw me responsible for communicating the value of private equity in Latin America. Defending private equity is a tough job to do sometimes, and certainly its reputation in developed markets precedes it. But in Latin America, where traditional financing sources are scarcer, corporate debt is comparatively expensive, and equity markets are shallower, private equity has played an important role in sourcing and financing companies that otherwise would have a difficult time reaching their full growth potential. And to calm the fears of ye eternal skeptics, the big debt-fueled buyouts common in the US and Europe and the restructurings famous for big layoffs and profit for investors have yet to reach Latin American shores in large numbers.

Instead, investors have pounced on Latin America’s prolonged stretch of growth and stability, underpinned by governments generally friendly to foreign participation in local industry, and a trend towards deregulation and competition. This is not, however, a permanent state, and a headline bad deal could endanger the industry in Latin America in a much more dramatic way than the U.S. and Europe.

The secretive nature of the industry in the U.S. and Europe has served it well for sourcing deals discreetly and making investors comfortable with the risk they take on. But it also engenders suspicion among policymakers and the public. This is why bringing the data to life is such an important step to solidifying a positive image for the industry and also reducing downside regulatory risk. Numbers may never lie, but they can bore people to tears.

This is what makes the Emerging Markets Private Equity Association’s (EMPEA) latest tool to navigate and visualize Latin American private equity activity so fascinating. In partnership with data giant SAP, EMPEA has launched a tool that brings Latin American PE activity to life while easily placing it in comparative perspective with other emerging markets (essential to global investors looking at EM in comparative relief). In a few clicks, even the most inexperienced users can get a sense of how much capital has been pumped into Latin America over the past five years through private equity. Users also see how the industry has evolved alongside the region’s rapidly changing economies.

Their data on Brazil, for instance, is telling. The short screen recording below shows how private investor appetite in Brazil has shifted dramatically over the past few years from traditional sectors like agribusiness and mining to consumer and retail.

I found another figure striking as well, one that I had understood in numerical form for some time but had yet to see in a chart. Looking at the overall ecosystem in Brazil, VC has posted remarkable growth as a percentage of dealflow. This shows how the market for private capital has matured and changed over time as much as it shows the strong venture pipeline in the Brazilian market.

EMPEA’s tool is still in beta, and there are a few visual kinks that still need to be worked out. It’s also only available to members (I’d personally like to see it available more widely as a public relations tool). All in all, it is a crucial step to creating a public consciousness around the transformational effects of the PE industry.

The research teams at other regionally-focused organizations produce fantastically accurate and thorough data on the region, including regional leader LAVCA and country group ABVCAP (Brazil). But where thorough data is essential to analysts, it is much more effective when accompanied with smart, innovative visuals to make it relevant to a wider audience.